lnsurance Producer Administrative Cost

STATE OF MICHIGAN

DEPARTMENT OF LABOR AND ECONOMIC GROWTH

OFFICE OF FINANCIAL AND INSURANCE SERVICES

Bulletin 2007-09-INS

In the matter of

lnsurance Producer Administrative Cost

1

Issued and entered

this IIth day of June 2007

By Linda A. Watters

Commissioner

It has come to the Commissioner's attention that some insurance producers have faced

uncompensated costs associated with repeated requests from lenders for multiple

copies of the same insurance policy documents, mainly in connection with auto and

home loan transactions. The purpose of this bulletin is to clarify that nothing in the

lnsurance Code, 1956 PA 218, MCL 500.100, ef seq., prohibits a producer from

charging a lender, or other third party, a fee to recoup reasonable administrative

expenses related to multiple requests for copies of insurance policies and related

documents.

lnsurance producers receive compensation for selling, soliciting or negotiating

insurance in the form of commission payments, which are specified in their contracts

with the insurers they represent. The commissions that insurers pay their insurance

producers include compensation for performing administrative services associated with

a policy of insurance, including the cost of providing coverage documents to insureds.

Auto and home insurers are required by law to build an allowance for these

commissions, as well as other administrative expenses, into the premium rates that they

charge to insureds. (MCL 500.21 10, MCL 500.2403, MCL 500.2603) They are required

to file these premium rates with the Commissioner of OFlS and are prohibited from

charging premium rates for insurance policies that are not in accordance with their

OFlS filings. (MCL 500.2108, MCL 500.2412, MCL 500.2602). Since the cost of the

administrative services that an insurance producer provides to an insured are covered

by the premium paid to the insurer, the insurance producer may not legally charge an

insured an extra fee for those services

are prohibited from

charging premium rates for insurance policies that are not in accordance with their

OFlS filings. (MCL 500.2108, MCL 500.2412, MCL 500.2602). Since the cost of the

administrative services that an insurance producer provides to an insured are covered

by the premium paid to the insurer, the insurance producer may not legally charge an

insured an extra fee for those services.

However, an insurance producer's commission does not normally cover the cost of

providing administrative services to people or entities other than the insured. Therefore,

the sections of law referenced above do not prohibit an insurance producer from

charging a lender, or other third party, a fee to recoup reasonable administrative

expenses related to multiple requests for copies of insurance policies and related

documents.

This bulletin does not address either the kinds of insurance documents or the scope of

non-public personal financial information an insurance agent may release or disclose to

a third party without the consent of or at the direction of the insured. Those matters are

subject to Chapter 5 of the lnsurance Code, MCL 500.501 to MCL 500.547, and all

applicable federal laws, including those cited in MCL 500.541.

Any questions regarding this bulletin should be directed to:

Office of Financial and lnsurance Services

Office of General Counsel

61 1 West Ottawa Street

P.O. Box 30220

Lansing, Michigan 48909-7720

Toll Free: (877) 999-6442

I da A. Watters

Commissioner